Banks have a responsibility to keep 1.5 alive

The Net Zero Banking Alliance (NZBA) appears set to drop its requirement for its members to align their activities with an increase in warming of 1.5°C, beyond which science shows that climate impacts will dramatically worsen. Doing so would be an act of extreme irresponsibility and is contrary to the intent of more than three decades of UN climate agreements. The disturbing reality that the world is not on track for 1.5°C should not be taken as a reason to give up on trying to meet the target, but a flashing red light on the need to double down on efforts to cut emissions. If NZBA does give up on 1.5°C, its individual bank members have a responsibility to maintain their commitment to 1.5°C — and to ensure that their targets are in reality 1.5°C aligned. 

The 130 banks in the Net Zero Banking Alliance (NZBA) are currently voting on a new protocol for their members. The new document drops all language that makes any actions from its members mandatory (it is proposed to be renamed from “guidelines” on target-setting to “guidance”). This makes it even more an act of faith than before to expect banks to take any meaningful action due to their NZBA membership. The most shocking move is the removal of the requirement for banks to set targets for their financing activities aligned with the 1.5°C temperature goal. The related target of reaching net zero by 2050 has been replaced with a loose goal of reaching net zero at some point in the future. Under the new protocol, banks are instead encouraged to align their activities with the Paris Agreement, “aiming to limit global warming to well below 2°C, striving for 1.5°C” (see below screenshot). Banks can also choose even weaker pathways based on regional or national “policy realities.” 

Not surprisingly, the temperature goals in the now decade-old Paris Agreement have long been overtaken by science and policy. Since 2015 the international community has accepted that crossing the 1.5°C threshold risks climate damages spiraling out of control. The IPCC’s 2018 special report on 1.5°C (SR1.5) predicted a massive increase in impacts between 1.5°C and 2°C including from extreme weather events, sea-level rise and biodiversity loss. It also showed that hitting the 1.5°C target would require reaching net zero emissions by 2050. This report and its stark findings established 1.5°C and net zero by 2050 as the key long-term objectives of global climate policy.

The first COP after the release of SR1.5, held in Glasgow in 2021, concluded with a call for countries to align their targets with 1.5°C and to achieve net zero by 2050. The final declarations of the COPs in 2022 and 2023 reaffirmed these commitments.

A supporting document circulated with the new proposal justifies this surrender to the opponents of climate action by arguing that as the world is not on track for 1.5°C it would be impossible for banks to meet a 1.5°C target.

The NZBA has claimed that the 1.5°C goal dissuades banks from developing countries joining the alliance. These countries may not have a net zero target or may have a target for later than 2050. However, when NZBA launched it already had accepted the principle of institutions doing their “fair share” of efforts to reach 1.5°C. This was a key tenet of the Glasgow Financial Alliance for Net Zero (GFANZ) to which NZBA belonged. This “fair share” language must be interpreted as meaning that banks operating in developing countries should not be expected to go as fast as their peers that operate mainly in the developing world. This principle was written into the UN climate convention in 1992 under the rubric of “common but differentiated responsibilities.”

It is no shocking revelation that the world is not on track for 1.5°C. But the lack of political leadership globally does not cancel the need for climate leadership from other public and private sector actors with the responsibility and capacity to take action, including the financial sector. In fact, the high-profile commitments made by financial institutions in favor of climate action were explicitly made as acknowledgments of the financial sector’s responsibility to take action in favor of the transition.

Moreover, when the NZBA committed to 1.5°C in its original 2021 guidelines, its members were well aware that the global economy was not then on track for net zero. There would have been no reason to form the NZBA if its members were just going to continue business-as-usual financing of the economy as it slowly transitioned. The only rationale for the existence of NZBA and the other net-zero alliances was to support its members to actively accelerate the transition by reallocating capital and financial services from high- to low-polluting activities.

One implication of the NZBA giving up on 1.5°C because they think it is too difficult, is that any new targets are liable to be discarded just as easily. The NZBA is proposing that its members can decide for themselves how to define the “well below 2°C” target. The thinktank Inevitable Policy Response, which is close to the finance industry, defines well below 2°C as between 1.7°C and 1.8°C. But the world economy is currently on track for 2.7°C. So the NZBA’s logic implies that they may also soon drop these targets and move on to 2°C and then higher. Furthermore, the NZBA does not explain why a “well below 2°C” target is realistic when a 1.5°C one is not, in a world heading for almost 3°C.

Regardless of what the NZBA decides, individual banks have a responsibility to hold the line on 1.5°C as long as it remains the goal of the international community. The fact that we are closing in on 1.5°C is not an excuse to give up, but a rallying call to fight harder.